In basic terms, a chit reserve is a course of action that a gathering of individuals touch base at to contribute cash in a characterised way at intermittent interims into a pool or a kitty. Amid the procedure of accumulation, any part can draw a single amount through different ways like a fortunate draw, a closeout or a part can even fix a pay-out date in light of a known consumption.
According to the definition given in the Chit Fund Act, 1982 a chit fund company is a company which acts/conducts/supervises chits. The schemes of the chit fund companies cab are organised or unorganised schemes even between friends or between relatives.
Prevalence of Chit Funds in India
These plans and the usage of chit funds are exceptionally well known in tier II and III towns in India and even in rustic India, on account of under-entrance of managing an account administrations, as they are a method for raising fast cash or cooking for sudden liquidity needs or even an arranged consumption.
Such funds and their usage have become popular due to constrained reach of saving money in residential areas. Also, the banks haven’t identified ways so that a person with less income and knowledge can be made to use the mainstream banking methods.
There is an office of “recorder of chit assets” in each express that screens operations which are very stringent. Usage and appointment of endorsers cash are entirely disallowed.
Often in India, clever and cunning players in the chit fund companies scan innocent and less knowledgeable people to collect fund and then not follow the agreement.